Deflating Balloon

One month ago this humble servant opined:

Rate cuts don’t work in this market. Despite the Federal Reserve's 3/4-percent rate cut, the highest since 1982, the Dow is more than 100 points lower as of this writing.

Prices are collapsing not because interest rates are too high but because a much higher discount for risk is being priced into financial assets. Put another way, if you were a bank lending officer, would it matter much if you charged 6%, 8%, or 10% on a loan if you thought the borrower had a good chance of defaulting? You can ask for more collateral, but those values are dropping as well.

Today Martin Feldstein echoes in the WSJ:

The dysfunctional character of the credit markets means that a Fed policy of reducing interest rates cannot be as effective in stimulating the economy as it has been in the past. Monetary policy may simply lack traction in the current credit environment.

The collapse of the credit markets began last summer when the subprime mortgage crisis demonstrated that financial risk of all types had been greatly underpriced.

But the reason he's a professional economist is that he can prescribe as well as diagnose. Perhaps Dr. Feldstein, who is a Harvard professor and was Chairman of the President’s Economic Advisors under Ronald Reagan, will tell us how to get out of this mess. He ends:

The implication of this for Fed supervision policy is clear [bank examiners should be tougher]. The way out of the current crisis of confidence is not. We can only hope that those who predict nothing worse than a temporary slowdown are correct.

Thud....but on second thought why not? It's fashionable these days to think that hope is a strategy. © 2008 Stephen Yuen

A Uniter, Not a Divider

Prefatory remark: I disagree with most of Barack Obama’s domestic policy prescriptions, and I have strong doubts about his readiness and willingness to defend the nation as Commander-in-Chief, but….

I can’t escape the emotional impact of seeing a Hawaiian “local boy” stand on the cusp of being the most powerful man in the world. It’s not exactly pride but more like surprise, gratitude, and even joy.

It’s hard to ignore the call of the clan, and Hawaiian society is among the most tribal and insular (pun intended) in the United States. If you don’t know someone personally, it’s likely you know her nephew or his uncle (I can’t tell you how often I find when visiting Hawaii that I’m related to someone that I just met). And the tribe came together yesterday in a record turnout at the Democratic caucus to vote for their favorite son.

Upon meeting a fellow Hawaiian, nearly the first question one is asked is “Which high school did you go to?” And so a word about the school that both Senator Obama and I were fortunate to attend, albeit nearly a decade apart.

Punahou School was founded by New England missionaries in 1841. For nearly a century it was a school of privilege, and very few non-whites attended. Punahou threw open its doors to all races after the Second World War, but attending the “haole” school was something one kept quiet through the Seventies because its students were generally (mis)perceived to be rich and stuck up.

One benefit that our education did confer upon me and my classmates---and obviously Barack Obama---is that it excised the kanaka (pidgin) twang from our speech. I don’t attribute this result to drilling and repetition but to immersion in an environment where correct English is spoken every day. All Punahou graduates are able to pass the “telephone test”* in which the listener cannot divine the race and/or Hawaiian origin of the speaker. (Of course, we could revert defensively to pidgin in social situations.)

Barack Obama’s resume has been criticized for being a little light, but here’s one significant accomplishment: Hawaiian society has come to love a Punahou graduate!

[*Political commentary: non-white politicians who are aspiring to a national office---think of Colin Powell, Bill Richardson, and Linda Chavez as examples---must also pass the telephone test.] © 2008 Stephen Yuen

Three Words

The tight Democratic contest threatens to turn into a race to the bottom. We’ve seen one candidate pointing out the overwhelming preference of one racial bloc for the other candidate, hoping to trigger a defensive reaction in other groups. We’ve seen the possible disenfranchisement of Florida and Michigan Democratic voters, legal maneuverings reminiscent of Gore v. Bush but with no Republicans to blame, veiled threats toward and near-bribery of super-delegates to the convention, and highly questionable voting results (zero ballots for Senator Obama in a Harlem district?) And now an accusation of plagiarism when Senator Obama borrowed a few lines from his friend’s speeches, apparently with the latter’s permission.

If the Democrats don’t know how to run their own party operations and obsess about trivialities, heaven help us if they get near health care or the Iraq war. Think the Republicans have made a hash of things? Three words to remind us that those who promise change can make things a lot worse: James Earl Carter.

I Feel the Wrath Coming

In this morning’s political news presumptive Republican nominee John McCain

admonished Democratic Sen. Barack Obama for hedging on his promise to accept public funding if he wins his party's nomination.

Accepting matching funds is a two-edged sword; government money comes with strings attached, including limits on how much one can spend on a campaign. Contributions to Senator Obama are likely to greatly exceed those he would receive in Federal matching funds and those that would be donated to Senator McCain. Senator Obama will probably have an advantage if he turned down Federal funds.

But the point of my mentioning this is not politicians and their tactical moves. Near the bottom of the AP story is this sentence: “As Obama has gained the momentum, he has drawn a greater proportion of McCain's wrath [emphasis added]”. Where did “wrath” come from? That’s an over-the-top description of one politician criticizing another.

If the AP reporter (Libby Quaid) wants to inject Democratic talking points about Senator McCain’s emotional state, do it in the editorial section. (I would feel the same way if a news story referred to Barack Hussein Obama, which has at least the virtue of being factually true although the repeated use of his middle name would be editorializing nonetheless.)

What’s happened to the Associated Press and professional news reporting? It’s enough to make me angry. © 2008 Stephen Yuen

Happy Valentine's Day

I hope you spent today with someone you love...and remembered to spend a few minutes with someone who's alone.

The Way to Their Hearts

The members of the household are forever in a rush during the morning. A bowl of cereal or oatmeal is all we have to fortify ourselves until lunch.

Today, Valentine’s Day, I took a few minutes—okay, an hour—to show them the love by making a pan of fried rice. Ingredients: brown rice, scrambled eggs, onions, boneless chicken, pepper sausage, bacon, green onions, and salt and pepper.

You Go First

In an extensive study of how viewers judge American Idol and its international variants, researchers concluded that contestants are rated higher if they go last than if they go first. Theories:

It may have something to do with the effect that preceding performers had on assessments of later contestants. Or later performers might just fare better because their effort is fresher in the judge’s mind. Of course, it could be a combination of the two.

We see this phenomenon in the Academy Awards, where it is the rare film that is released early in the year and wins the Oscar. As a hiring manager, I have learned to take good notes when interviewing candidates in order to give the earlier ones a fair shake.

And let us not forget the effect on the performers themselves. Whether the contest is singing or poker (but not chess, interestingly, where white has the advantage at the highest level of the game), the one who makes the last move has superior, often decisive information. “You go first” is not merely polite but self-serving. © 2008 Stephen Yuen

Poor Little Lamb Who Has Lost His Way (Baa!)

The Archbishop of Canterbury birthed a storm of controversy last week when he said that Sharia law should be accommodated in the U.K. It’s very easy in a ten-second soundbite world to decry his statement. The Western image of sharia is one of horrible excess: beheadings, stonings, cutting off limbs, and honor killings. And these punishments are often meted for “offenses” that are not even considered to be crimes in the West.

But Dr. Rowan Williams is not a stupid man (although some have referred to him using Lenin’s apocryphal appellation, useful idiot). His entire BBC interview reeks of reasonableness.

There's one law for everybody is an important pillar of our social identity as a Western liberal democracy, but I think it's a misunderstanding to suppose that that means people don't have other affiliations, other loyalties which shape and dictate how they behave in society and the law needs to take some account of that.

The Archbishop starts with an uncontroversial proposition: the people and their representatives all have different backgrounds. But from there he seems to make a leap to "one law for thee and one for me". We use reasoning, moral sensibilities, and personal experiences---whether grounded in religion or not---to formulate our laws; and because we have such diverse backgrounds and beliefs, laws are the result of compromise and very few are to everyone's liking. But in our system there is one law, agreeable or not, that all must obey.

The problem I have with Archbishop Williams---and the Anglican Communion’s U.S. branch---is that there’s too much of turning the other cheek and not enough of defending the faith and the civilization from which it springs. Perhaps it is because many church leaders believe that the fashionable theology of the moment (Gaia, the un-Virgin birth, God the Mother, the Resurrection is a myth, homosexuality is innate but not sinful, sin is a quaint outmoded concept, etc.) is “truer” than beliefs held for hundreds if not thousands of years. If they don’t believe in the mission, they should behave as normal people do in the workaday world and resign.

And what does the traditional church believe about the primacy of secular law?

The Power of the Civil Magistrate extendeth to all men, as well Clergy as Laity, in all things temporal, but hath no authority in things purely spiritual. And we hold it to be the duty of all men who are professors of the Gospel, to pay respectful obedience to the Civil Authority, regularly and legitimately constituted.

--Articles of Religion of the Episcopal Church, 1801.

© 2008 Stephen Yuen

Tom Lantos

Hayward-San Mateo Bridge
on a warm afternoon last Saturday

Tom Lantos has died of cancer. Rep. Lantos has been the House member for the 12th district (San Mateo) since 1981 and chaired the House Committee on Foreign Affairs. A Hungarian Jew, he survived the Holocaust and came to the U.S. in 1947 and settled in San Mateo County in 1950. (The Chron’s bio is here.)

In a district where Democrats outnumber Republicans by 2 to 1, Tom Lantos’ seat was the very definition of safe. Perhaps that safety gave him the freedom to break with the anti-Israel extremists in his own party and speak out against human rights abuses by America’s adversaries as well as its friends.

I suppose Tom Lantos’ longevity is an argument for term limits, but he tended to stay out of partisan frays and I found his presence reassuring. His replacement, whoever he (or she—most likely former State Senator Jackie Speier) is, will do well to emulate his restraint.
© 2008 Stephen Yuen

"Wii"-habilitation

Per an AP article in today's Chron:

Nintendo's Wii video game system, whose popularity already extends beyond the teen gaming set, is fast becoming a craze in rehab therapy for patients recovering from strokes, broken bones, surgery and even combat injuries.

If you can get your doctor to write a prescription, you may be able to deduct the Wii purchase as a medical expense. Depending on your plan, the Wii may even qualify for reimbursement as physical therapy equipment. But sorry, greedy geeky game guy, you’ll just have to pay for Resident Evil yourself. © 2008 Stephen Yuen

Unchurched

James Taranto writes about the fervent emotions that Barack Obama engenders in some of his supporters. "Barack Obama is nothing but inspiring--so inspiring that it is becoming deeply creepy." Mr. Taranto goes on to cite similar reservations from others, most of whom are Democrats who will likely vote for Senator Obama in the general election should he become the party’s nominee.

Per Obama voter Kathleen Geier:

Excuse me, but this sounds more like a cult than a political campaign. The language used here is the language of evangelical Christianity – the Obama volunteers speak of "coming to Obama" in the same way born-again Christians talk about "coming to Jesus."

Ms. Geier is onto something. When as a young boy I heard Martin Luther King’s “I Have a Dream” speech, I was nearly brought to tears. Dr. King knew how to use his powerful speaking voice, Biblical symbols, and poetic imagery to uplift an audience and call it to action. It was my first exposure to the preaching style that is familiar to Southern Baptists and evangelical Christians, and over the years, like many of us who spend our Sundays sitting in pews, have come to recognize and control the powerful emotions these words can produce. (By the way, I still get chills when I hear that speech.)

Barack Obama is not the oratorical equal of Martin Luther King—who is?—but he is the best that this generation has heard. I dare say that young people are flocking to him not only because they are in agreement with his policies (which don’t differ too much from Hillary Clinton's or John Edwards'), but because few of them by attending church regularly have been inoculated against the cadences of preacherly oratory. Barack Obama is only a man, with very little walk to measure against his talk. His followers' disappointment and anger when he is eventually defeated may be frightening to behold. © 2008 Stephen Yuen

O, What A Feeling

On occasion you will see a bright young MBA rapidly ascend the ranks of a public company. A star salesman, for example, will be put in charge of a regional office, becomes a product-line VP, then is promoted to Senior VP with an office back at headquarters, until finally he becomes a candidate for the big chair. Or she could initially be hired into the corporate planning staff, and on the strength of her brilliant white papers and oral presentations, be rotated into line positions to try to implement her ideas.

Unless he founded the company or his family owned a chunk of stock, a person with less than ten years of experience would never become the CEO of a major public company. There are too many things that will be new to him, and way too much learning that will have to occur on the job. Although he’s brilliant at Finance, it’s unlikely that he’s very familiar with what it takes to run a successful IT, legal, marketing, manufacturing, human resources, engineering, and customer service department.

You might take the risk on the bright young superstar if the company were in dire straits, and the ossified current management seemed to be at a loss for answers. As we go to the polls today, the media and campaign ads shout about the foreclosure / Iraq war / global warming / budget deficit / health care / illegal immigration / energy etc. etc. crises and we can’t help but feel bad about the way things are going.

But ask yourself, as one politician did decades ago, “Are you better off?” Tune the din out. How are you doing? How are your family, friends, and neighbors doing? If your life is at a point where you’re willing to give up what you have because the unknown has to be better, then fine, vote for change. Just understand that people who promise to change our lives, especially if they lack experience, can make them worse. © 2008 Stephen Yuen

[Update - 3:00 PM PST: Drew Carey's video questions whether the middle class' plight is as bad as everyone thinks.]

2008 Super Bowl Blog: Giants vs. Patriots

Do the New York Giants have a chance against the undefeated New England Patriots? Yes, but they'll need to play the game of their lives, plus have a few bounces go their way.

In 1990 the San Francisco 49ers, led by quarterback Joe Montana, were coming off two consecutive Super Bowl victories and again had the best record in the league at 14-2. Only the New York Giants, whom the Niners had beaten earlier in the season, stood in their path to an unprecedented third Super Bowl and a probable victory over the Buffalo Bills. The 49ers had everything going for them---the aura of a champion, the homefield advantage, the ball, and the lead with less than 3 minutes to go in the game. But All-Pro running back Roger Craig fumbled, and the Giants prevailed with a field goal at the end, 15-13, and beat the Bills in the Super Bowl.

The Lawrence Taylor Giants foiled the Niners' claim to be the "best team ever" based on continuous performance over several seasons. Can the Eli Manning Giants beat possibly the single-season-best-team-ever, led by future Hall of Fame quarterback Tom Brady and coach Bill Belichick? Let the game begin.

3:40 PM PST - The opening drive by the Giants is impressively controlled. They're mixing up short passes and runs and are dominating the line of scrimmage. The Giants are inside New England's 30.

3:50 PM PST - New England's defense tightens and the Giants strike first with a field goal, 3-0.

4:07 PM PST - New England answers with a drive that ends with a one-yard run for a touchdown by Laurence Maroney. They lead 7-3. Tom Brady has been off slightly on a couple of passes---funny how we hold him to a different standard, just as we did with Joe Montana, Steve Young, and Troy Aikman.

4:20 PM PST - A sensational sideline catch by Giants wide receiver Amani Toomer put the Giants inside the NE 20. But fortunes reversed when the ball was intercepted after bouncing off the Giants receiver on a subsequent play. If Brady marches down the field for a score, New England will be on the verge of asserting its dominance. (In most Super Bowls the trend establishes in the second quarter and ends in a blowout.)

4:30 PM PST - The Giants hold New England on their side of the field. The Patriots punt, and the Giants go nowhere on their possession. In fact the Giants are lucky they get to punt, since a muffed handoff looked at first like it was New England's ball.

The Giants have made the mistakes--a fumble, interception, and pass-interference penalty that led to the Patriots score. If the half ends with the Giants within one score of the Pats, their perseverance in the face of miscues may be somewhat paradoxically a confidence-builder for New York.

4:35 PM PST - Tom Brady has been sacked twice, and the Patriots punt. The Giants are running the football and are now inside the Patriots 30. They appear to be winning the battle at the line of scrimmage, both offensively and defensively.

4:45 PM PST - Inside the NE 30, Giants QB Eli Manning is sacked and fumbles. In the ensuing scramble the Giants are called for an "illegal bat" (is this baseball?) for trying to knock the ball forward. The penalty pushes the Giants back out of field goal range and they are forced to punt. New England's ball on their own 11.

5:00 PM PST - It's all on Brady's shoulders as he passes New England to midfield. But he's getting hit on every play. He's sacked and fumbles, but the Giants only have ten seconds left in the half to score. Score at the end of the half, 7-3.

5:30 PM PST - New England takes the kickoff, and their drive stalls at midfield. They punt...but wait, do the Giants have 12 men on the field? The five-yard penalty would give the Pats a first down. Belichick challenges the non-call. Another Giants mistake. Will this be more the Giants losing the game versus New England seizing the victory?

5:38 PM PST - New England's challenge is upheld. First down. How many times can you give Tom Brady a second chance?

5:45 PM PST - The Giants hold. New England is within field goal range, but Brady is sacked! NE foregoes a 49-yard field goal attempt and goes for it on fourth down. The pass falls incomplete, and the Giants take over on their own 31. If the Giants lose, it won't be the defense's fault.

5:53 PM PST - Eli Manning's passes fall incomplete, and the punt goes out of bounds on the New England 10. How long can New England keep losing the battle of field position and hold the lead?

6:00 PM PST - Under fierce pressure Brady passes the Patriots to midfield, where the Giants hold. The quarter ends, 7-3, with the Giants about to receive a punt near their end zone.

Although low-scoring, it's been a good game. Looks like I'll have to watch until the end. The under-bettors can start cashing their checks.

6:09 PM PST - On the first play from scrimmage, Eli Manning completes a 45-yard pass to Kevin Boss. Where did that come from? Another pass is completed to the New England 12. Is that Peyton down there?

6:11 PM PST - Manning passes for a touchdown to David Tyree. Giants 10, Patriots 7 with 11 minutes to go in the game. Brady has 'em just where he wants 'em.

6:20 PM PST - The Giants are hitting Brady on every play. Looks like the Patriots have given up on the run. The Patriots punt. The clock and the game's elusive momentum are tipping in favor of the Giants. If the Patriots win now, they'll deserve the accolades.

6:30 PM PST - The Giants can't close the deal and have to punt. With seven minutes to go, the New England offense has plenty of time. Because of the Giants pass rush, they shorten the passing game. Brady dinks and dunks the ball, and before you know it the Patriots are inside the Giants 30.

6:37 PM PST - 4 minutes to go in the game. Randy Moss makes a catch just inside the 20. Another pass goes to running back Kevin Faulk. First and goal on the 8. Excitement builds. No matter who wins, this has been a good Super Bowl. Will it be a great one?

6:40 PM PST - Brady misses a wide-open Randy Moss in the end zone. He underthrows the next pass to a running back. Could he be hurt, tired, and/or rattled? Close-ups on TV say no. Less than 3 minutes to go.

6:42 PM PST - Touchdown pass to Randy Moss. From one future Hall-of-Famer to another. Patriots 14, Giants 10. With more than 2:42 to go, the Giants will have an opportunity. Will they seize it?

6:44 PM PST - The Giants are on their own 30 after two incomplete passes. It's third down and 10 at the two-minute warning. This is Eli Manning's Super Bowl. Either he or Tom Brady will be the MVP.

6:44 PM PST - Huge decision for the Giants. Fourth-and-one on their own 37. They go for it and just make it.

6:50 PM PST - Unbelievable play by Eli Manning. He looked like he was grabbed by two Patriots, somehow got away, and heaved it downfield for a 32-yard leaping catch by David Tyree. With 59 seconds to go, New York is on New England's 24 yard line.

6:55 PM PST - Third and 11 on the Patriots 25. The Giants were forced to call their last time out when Manning was tackled for a one-yard loss. A sideline pass to Steve Smith just makes it to the first down marker before Smith goes out of bounds. Is my heart racing or stopping?

6:56 PM PST - Touchdown pass to Burress! Giants 17, Patriots 14.

6:59 PM PST - Brady is sacked. With 19 seconds left to get within field goal range, it's third and 20. A bomb to Moss is broken up. Now it's fourth down and 20.

7:01 PM PST - The bomb falls incomplete! Final Score, Giants 17, Patriots 14. Whew. What a game. What a season. Well, even Tiger Woods doesn't win 'em all.

© 2008 Stephen Yuen

Slow Going

The alternate route was longer and much, much slower.

On a good day we can make the drive from San Antonio Road to Foster City in 20 minutes. Tuesday wasn’t a good day.

A van rear-ended a tanker truck (no one was hurt, thankfully), and 2,000 gallons of fuel spilled onto the northbound lanes of Highway 101. North 101 was shut down--as were the southbound lanes a few minutes later--to guard against a stray spark igniting an explosion.

Everyone exited to the surface streets, and after waiting through several light changes. I finally pointed the car uphill and crawled toward Highway 280. We averaged 15 MPH and got home in two hours.

The freeway was closed through the evening as Caltrans pumped the fuel and kept it from draining into the Bay. Another problem was that the gas corroded the rubber-based asphalt, so the road had to be repaved. The freeway reopened by Thursday evening. The commute was back to normal---better, actually, because we were driving nearly at the speed limit in the rain.

Caltrans is notorious for being a wasteful bureaucracy (affirmed by anecdotes from friends who work there), but it performed well during this emergency, as well as during the planned replacement of an upper deck section of the Bay Bridge last Labor Day weekend. Both occasions required planning, execution, and training to pull off in a timely manner.

When a government organization is effective, I am first surprised, then grateful. (I can’t think of any that are effective and efficient.) At least Caltrans is getting the job done. © 2008 Stephen Yuen

Temperatures Rising

Two bhut jolokias equal one pepper spray (WSJ graphic)

When they eat, some people I know are happiest when they slather their dish with tabasco, jalapenos, or other hot peppers. Although they look pained, sweaty and miserable, they’re enjoying themselves immensely. There’s a scientific explanation:

When capsaicin comes into contact with the nerve endings in the tongue and mouth, pain messengers, called neurotransmitters, are sent to the brain in a panic. The brain, mistakenly perceiving that the body is in big trouble, responds by turning on the waterworks to douse the flames. The mouth salivates, the nose runs and the upper body breaks into a sweat. The heart beats faster and the natural painkiller endorphin is secreted. In other words, you get a buzz.

Understanding dawns: pepper-lovers are like marathon runners who become addicted to the endorphins that are released when they stress their bodies. For his story on the bhut jolokia, the world's hottest pepper, WSJ reporter Stan Sesser (who even looks like a long-distance runner) sampled it personally in the video below. Give the man a Pulitzer!